Wood Mackenzie expects the recent cost overrun disputes
around the canal expansion to be resolved with limited
disruption due to the significance of the Canal to global
Significant disruptions will crimp profitability for US LNG
producers, create a tighter LNG shipping market and affect
the US Gulf Coast petrochemical
"Given the enormous strategic and financial importance of the
Canal to Panama, we expect the gridlock to be resolved," says
Andrew Buckland, Senior LNG Shipping Analyst at Wood
Mackenzie. "If the delays last 6 12 months, it will
have limited impact, as trade will carry on much as it does
now, but further delays threaten the investments of a
significant number of groups that are set to benefit from
expanded capacity on the waterway."
The expansion will benefit users depending on the position of
their ports in relation to the canal, particularly the US,
whose cargo accounts for 65% of total cargo moved through the
"When completed, US coal suppliers will see some of the
greatest benefits from the expansion
as they will realize
substantial cost and time savings, even when compared with
Colombian and Venezuela suppliers. The shortening of the
route to Asian markets will result in greater opportunities,"
added Jaime Correal, Senior Coal Markets Analyst at Wood
Analysis by Wood Mackenzie shows US coal producers to benefit
from completion of the canal due to further delays; issues
for coal, gas and oil trading are:
- If the canal expansion is further delayed,
Australia and Canada could grow its market share in the
Asia-Pacific region, delaying the opportunity for US Gulf
coal suppliers to benefit from the expansion.
- US Gulf coal suppliers can achieve savings of about
US$4.72/ton ($/t) on ocean freight rates using capesize
vessels through the Panama Canal when compared with a
routing of the same size vessel via the Cape of Good Hope
and Sunda Straits. The Canal will save 9.7 days and the
cost savings will increase trade of thermal and
metallurgical coal from the US to Japan, Vietnam and
eventually China via US Gulf Coast ports.
- US suppliers will become more efficient into countries
located in the Pacific Coast of South America, especially
Chile where Colombian producers have traditionally
dominated the coal market.
- Although the expanded canal will accommodate capesize
vessels, cargo weight will be limited to less than 140,000
payable load tons, which will restrict the passage of fully
- US coal exports from the US East coast to China will
lose the opportunity of capturing additional market share
in China and South America.
- The trip to China from the East coast via the Panama
Canal cuts 6.2 days and can help to realize savings of
US$0.89/t assuming time charter rates of $60,000/day for a
- LNG is not currently traded through the Panama Canal as
most LNG vessels are too wide to fit through the locks. The
expansion project will allow all but the
very largest LNG ships to use the Panama Canal.
- A delay until early 2016 will impact the first US Gulf
LNG exports from Sabine Pass. This will impose a higher
shipping cost to target markets in Asia as ships will need
to take a longer route via the Cape of Good Hope. However,
the differential between US and Asian gas prices will still
make the trade profitable and initial volumes will be small
as the project ramps up.
- The LNG shipping market will be tighter (with higher
spot-market freight rates) than it would otherwise have
been as volumes from Trinidad and the USA will have to
travel the long way round to Asia. The LNG shipping market
is expected to weaken between now and 2016 as new ships are
delivered to the market before new capacity comes
- No impact on Venezuelan crude exports to China is
anticipated. Trade will continue to be more cost effective
in Very Large Container Carriers (VLCCs) that are too big
to fit through the expanded canal.
- Supports higher product prices in Chile and exposes US
exports to higher shipping costs.
- Supports product exports via alternate routes.